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Hiring Freelancers: Is Your Company Compliant?

As the economy continues to move toward a gig-based business model, more and more companies are hiring freelancers and independent contractors. While this arrangement provides benefits to both parties, failing to classify workers correctly can land your business in hot water. Therefore, in addition to protecting your operation with a comprehensive Delaware Employment Practices Liability Insurance policy, read on to ensure you are in compliance with labor boards.

If the worker is improperly classified, they run the risk of missing out on important perks of being an employee such as paid vacation time, sick leave, 401K, and insurance benefits. Further, the employer can incur penalties, fines, lawsuits, and even jail time if they fail to provide the proper classification and tax forms to the worker.

While classifying workers may seem simple, an estimated 3.4 million employees are classified as independent contractors when companies should report them as employees, according to JustWorks, an HR management software provider.

Jeff Wald, Work Market co-founder and president, explained “Where worker classification is concerned, no hard-and-fast criteria exists, despite the fact that the Department of Labor, National Labor Relations Board, IRS and a host of state labor-related agencies have their various interpretations.” Therefore, getting everyone on the same page has been a pain point for labor boards and employers alike.

In order to ensure compliance and reduce the risk of fines and even more severe consequences of worker misclassification, consider taking the IRS-20 Factor test. This will determine how much financial and behavioral control the employer has over the worker, which will in turn help to define how they should be classified. In addition, the Economic Realities test can help decipher the classification of the worker. The New York Times reports that under federal tax and labor law, contractors must have greater independence than employees, which limits their use, says the article. The New York Times states “Simply put, if you tell someone when, where and how to work, you do not have a contractor relationship.”

At IFS Insurance, we specialize in protecting business likes yours throughout Delaware, New Jersey, Pennsylvania, and Maryland. Our quality solutions and commitment to excellence has allowed us to serve these states for over 50 years. For more information about our products, we invite you to contact us today at (855) 259-2428.